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GST - WINNERS & LOSERS

4 THEMES - CHANGE IN TAX RATE FOR CONSUMER, SHIFT TO ORGANIZED, INPUT CREDITS, EFFICIENT SCM

Goods and Services Tax (GST), India’s biggest tax reform is at the cusp of its legislative birth. While we have summarized below notable sector/company insights from the report, on the macro front, we expect GST to have a neutral impact on government revenues initially (but should be accretive over time), while the reported CPI is likely to remain stable. However, consumers may feel the pinch due to rising taxation on services.

Benefits or adverse impact of GST can be broadly classified into 4 themes –change in effective tax rate, shift from trade from unorganized to organized, availability of input credits and efficient in supply chain.

SECTORS/COMPANIES LIKELY TO EMERGE AS GAINERS – (a) Consumer – Pidilite; Asian Paints; Century Plyboards (b) Autos – Hero MotoCorp; Maruti Suzuki; Amara Raja Batteries; Exide Industries (c) Cement – ACC (d) Multiplexes – PVR; Inox (d) Light electrical – Havells; Crompton Consumer; Symphony; V-Guard (e) Media – Dish TV (f) Retail – Shoppers Stop, and (g) Logistics – TCI and Gati.

SECTORS/COMPANIES LIKELY TO LOSE – (a) FMCG – ITC; Titan (b) Media: Print companies – HMVL; DB Corp; Jagran Prakashan; HT Media (c) Automobiles – Ashok Leyland.

THEME#1 CHANGE IN CONSUMER LEVEL EFFECTIVE TAX RATE

Final effective tax paid by the consumer will change due to application of uniform tax rates, reducing product level exemptions and removing cascading effect. Though tax will be brought down for most sectors, this would have a material implication only for those companies (a) that have the pricing power to retain the decrease or do not have the pricing power to pass on the increase in effective tax rates, or (b) where increase / decrease in consumer pricing would impact volume growth, and hence, corporate earnings.

THEME#2 SHIFT FROM UNORGANIZED TO ORGANIZED

GST implementation is expected to narrow the large indirect tax differential between the organized and unorganized players by – reducing threshold for exemption, tracking input credit across value chain, providing input credits & reducing overall tax rates. Key sectors to benefit: Significant unorganized markets exist in the B2C sectors.

THEME#3 AVAILABILITY OF INPUT CREDITS

Under the current regime, the taxes levied by different levels of government / different states are not allowed to be set off against each other. This would particularly benefit retailers, multiplexes that operate through leased stores and pay significant indirect taxes (service tax) on lease rentals. The GST regime would allow these indirect taxes to be set off.

THEME#4 EFFICIENCY IN SUPPLY CHAIN MANAGEMENT

Currently, decision making in supply chain management is based not only on business requirements but also on tax planning. The current legal framework exempts CST if interstate movement of goods is for stock transfer and not for sale. Under GST, since CST is subsumed, supply chain management would become a pure play of business requirements. In several sectors, we expect consolidation of the current supply chain, leading to reduction in operational cost on the one hand and lower inventory carrying cost on the other.
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GST - WINNERS & LOSERS

4 THEMES - CHANGE IN TAX RATE FOR CONSUMER, SHIFT TO ORGANIZED, INPUT CREDITS, EFFICIENT SCM

Goods and Services Tax (GST), Indias biggest tax reform is at the cusp of its legislative birth. While we have summarized below notable sector/company insights from the report, on the macro front, we expect GST to have a neutral impact on government revenues initially (but should be accretive over time), while the reported CPI is likely to remain stable. However, consumers may feel the pinch due to rising taxation on services.

Benefits or adverse impact of GST can be broadly classified into 4 themes change in effective tax rate, shift from trade from unorganized to organized, availability of input credits and efficient in supply chain.

SECTORS/COMPANIES LIKELY TO EMERGE AS GAINERS (a) Consumer Pidilite; Asian Paints; Century Plyboards (b) Autos Hero MotoCorp; Maruti Suzuki; Amara Raja Batteries; Exide Industries (c) Cement ACC (d) Multiplexes PVR; Inox (d) Light electrical Havells; Crompton Consumer; Symphony; V-Guard (e) Media Dish TV (f) Retail Shoppers Stop, and (g) Logistics TCI and Gati.

SECTORS/COMPANIES LIKELY TO LOSE (a) FMCG ITC; Titan (b) Media: Print companies HMVL; DB Corp; Jagran Prakashan; HT Media (c) Automobiles Ashok Leyland.

THEME#1 CHANGE IN CONSUMER LEVEL EFFECTIVE TAX RATE

Final effective tax paid by the consumer will change due to application of uniform tax rates, reducing product level exemptions and removing cascading effect. Though tax will be brought down for most sectors, this would have a material implication only for those companies (a) that have the pricing power to retain the decrease or do not have the pricing power to pass on the increase in effective tax rates, or (b) where increase / decrease in consumer pricing would impact volume growth, and hence, corporate earnings.

THEME#2 SHIFT FROM UNORGANIZED TO ORGANIZED

GST implementation is expected to narrow the large indirect tax differential between the organized and unorganized players by reducing threshold for exemption, tracking input credit across value chain, providing input credits & reducing overall tax rates. Key sectors to benefit: Significant unorganized markets exist in the B2C sectors.

THEME#3 AVAILABILITY OF INPUT CREDITS

Under the current regime, the taxes levied by different levels of government / different states are not allowed to be set off against each other. This would particularly benefit retailers, multiplexes that operate through leased stores and pay significant indirect taxes (service tax) on lease rentals. The GST regime would allow these indirect taxes to be set off.

THEME#4 EFFICIENCY IN SUPPLY CHAIN MANAGEMENT

Currently, decision making in supply chain management is based not only on business requirements but also on tax planning. The current legal framework exempts CST if interstate movement of goods is for stock transfer and not for sale. Under GST, since CST is subsumed, supply chain management would become a pure play of business requirements. In several sectors, we expect consolidation of the current supply chain, leading to reduction in operational cost on the one hand and lower inventory carrying cost on the other.

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